William Miles () (Department of Economics, Wichita State University, 1845 Fairmount, Wichita, KS 67260-0078, USA) Chu-Ping C. Vijverberg () (Department of Economics, Wichita State University, 1845 Fairmount, Wichita, KS 67260-0078, USA)
Abstract
Inflation uncertainty has been shown theoretically and empirically to lower real output (Friedman 1977; Grier et al. 2004). Employing a Markov-switching model with regime-varying variance, as well as more traditional generalized autoregressive conditional heteroskedasticity (GARCH) estimation, we investigate recent changes in the level, persistence, and uncertainty of U.S. inflation. Despite the great strides in lowering inflation in the 1980s and 1990s, we find that uncertainty has risen palpably in the current decade. This is disturbing given the aforementioned findings of the negative impact of inflation uncertainty on output. Moreover, analyzing both the standard Consumer Price Index (CPI) and the CPI minus energy, our results suggest that volatile energy costs contribute to the higher inflation uncertainty in the United States in the current decade.
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Volume (Year): 75 (2009) Issue (Month): 3 (January) Pages: 736–749 Download reference. The following formats are available: HTML
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